Mpc Minutes - August 2005

[JST]

http://www.bankofengland.co.uk/publication...005/mpc0508.pdf

5/4 in favour of a cut. Mervyn King voted against.

Edited August 17, 2005 by JST

[erd]

http://www.bankofengland.co.uk/publication...005/mpc0508.pdf

<{POST_SNAPBACK}>

5-4 in favour of the cut, wonder what next months will be?

I can see 4 wanting an immediate rise ...

The Governor invited members to vote on the proposition that the repo rate should be reduced by

25 basis points to 4.5%. Five members of the Committee (Kate Barker, Charles Bean, Richard

Lambert, Stephen Nickell and David Walton) voted in favour. Four members of the Committee (the

Governor, Rachel Lomax, Sir Andrew Large and Paul Tucker) voted against, preferring to maintain

the repo rate at 4.75%.

[Numani]

who switched sides from the july meeting?

edit: seems it was Paul Lambert

Edited August 17, 2005 by Numani

[Sledgehead]

who switched sides from the july meeting?

edit: seems it was Paul Lambert

<{POST_SNAPBACK}>

what do you read into that N?

[delite1]

OK hands up time. I was thinking that King may have been gutless and had become just another one of Browns cronies but I have to take it back and hand it to the man.

In fact I thought it may have been 9-0, so on reflection very much "game on" I would say!

Edited August 17, 2005 by delite1

[Numani]

what do you read into that N?

<{POST_SNAPBACK}>

all the senior people know that inflation is capable of creeping upwards and recognise that the UK consumer needs to take some pain and retrench now rather than MORE pain later. the others...don't know what they are thinking!!

[OnlyMe]

The person who made the decision to drop rates at the last meeting was BROWN.

You can almost totally control interest rate policy at will when you have 4 stooges in the MPC to vote for you as you only need 1 other person to vote with this block and whatever you decide is the outcome.

Independant BOE, my ****.

[erd]

Interesting to note that they make no mention in the report, or the annex http://www.bankofengland.co.uk/publication...pcannex0508.pdf of inflation at 2.3%. They only refer to the June figure of 2.0% and the August inflation report.

[eek]

Interesting to note that they make no mention in the report, or the annex http://www.bankofengland.co.uk/publication...pcannex0508.pdf of inflation at 2.3%. They only refer to the June figure of 2.0% and the August inflation report.

<{POST_SNAPBACK}>

That 2.3% figure wasn't available at the time only the 2% figure from June. My guess would be that given the sharp rise in July there will be a strong vocal discussion for no more rate cuts, a pause for 2 months and a rise in November (the first opportunity where they could do it without looking idiots).

[I Told You So]

All 4 of Brown's stooges voted for a cut.

UNBELIEVABLE have they no shame?

The only consulation I can take from this is that they must be feeling pretty stupid after yesterdays 2.3% inflation figure.

Is nothing in this world straight AHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH

[Bear Goggles]

That 2.3% figure wasn't available at the time only the 2% figure from June. My guess would be that given the sharp rise in July there will be a strong vocal discussion for no more rate cuts, a pause for 2 months and a rise in November (the first opportunity where they could do it without looking idiots).

<{POST_SNAPBACK}>

I think they look like idiots already. If we get another jump in the monthly inflation figure like July there's going to be serious pressure for a rate rise.

Cutting the interest rate at a time of rising inflation IS STUPID. There is no excuse for it!

(Credit to Merv though for voting against it)

[Ah-so]

I think they look like idiots already. If we get another jump in the monthly inflation figure like July there's going to be serious pressure for a rate rise.

Cutting the interest rate at a time of rising inflation IS STUPID. There is no excuse for it!

(Credit to Merv though for voting against it)

<{POST_SNAPBACK}>

It depends on the causes of the inflation - if led by demand and an excess of money in the system, it would not be justified.

If inflation is caused by external factors, in this case the price of oil, which makes pretty much everything more expensive, it reduces overall demand. This will negatively impact the economy and government finances and could ultimately be defationary. Cost-push inflation is not resolved by higher interest rates.

[Nijo]

Indeed. I think he said it in one of the previous reports: if oil reaches a new long term value then inflation will only blip for a short time before settling down. Oil is only constantly inflationary if it constantly increases in price.

Which it well might, but that's beside the point.

Does anybody know whether the markets reacted in surprise to the 5-4 vote?

[zzg113]

if oil reaches a new long term value then inflation will only blip for a short time before settling down. Oil is only constantly inflationary if it constantly increases in price.

That's ridiculous. So if oil suddenly jumped from $67 to $200 and stayed there, all that would happen is a one-month spike in the inflation number, and then go back to 2% or whatever? I thought inflation was supposed to measure the change in the cost of living, not the change in the change in the cost of living (that's not a typing error BTW).

Does anybody know whether the markets reacted in surprise to the 5-4 vote?

http://news.ft.com/cms/s/b2e12d12-0f0a-11d...000e2511c8.html

Simon Rubinsohn of Gerrard, the wealth manager, thought it “sensational” that Mervyn King opposed the rate cut and noteworthy that “the governor of the Bank does not seem to buy into his chief economist's macro view.”

http://www.thisismoney.co.uk/news/article....44&in_page_id=2

THE recent cut in interest rates wasn't the inevitability most economists predicted

http://www.rte.ie/business/2005/0817/boe.html

Analysts had predicted only one member would have opposed the cut and the minutes are likely to reduce expectations of future interest rate cuts.

Yes, the markets were surprised by this number.

[vinny]

Quote ZZG: "That's ridiculous. So if oil suddenly jumped from $67 to $200 and stayed there, all that would happen is a one-month spike in the inflation number, and then go back to 2% or whatever? I thought inflation was supposed to measure the change in the cost of living, not the change in the change in the cost of living (that's not a typing error BTW)."

Two things, if oil was constantly "high" at say $200, then this would feed through to say the RPI figures. But if it stayed at $200 forever (theoretical I know) then it would not drive futher inflation once this price had been fully absorbed (may take years to feed though fully).

Inflation should really be thought of in terms of supply of money. High inflation = lots of cash splashing around, low inflation = money supply tighter.

Cost of living as measured by, for instance the RPI, is a measure of the cost (or rise in the cost) of living (cosumables + others). It is thought that the greater the RPI then the greater inflation. This may, or may not, be so.

We've had high "true" inflation for years, cheap credit, loose fiscal policy etc.....loads of cash, real or imagined flying about, it has just manifested itself as house price inflation. Inflation will now shift in my opinion, the effect..... to increase the price of consumer goods.

V

[eek]

That's ridiculous. So if oil suddenly jumped from $67 to $200 and stayed there, all that would happen is a one-month spike in the inflation number, and then go back to 2% or whatever? I thought inflation was supposed to measure the change in the cost of living, not the change in the change in the cost of living (that's not a typing error BTW).

<{POST_SNAPBACK}>

Actually the figures would jump one month and the impact of that jump would remain for the year. There would also be an additional jump on a monthly basis as other prices rose to cover the impact the increased oil price had on the cost of other prices. Something like:-

August 2005 increase due to price at pump

September further (small) increase due to food prices rising to cover increased delivery costs

October ditto

November ditto plus cost starts to be reflected in wholesale prices which are also passed on.

December - November ditto as costs are passed on.

but August 2006 drop to reflect that the pump price increase was over a year ago.

[eek]

We've had high "true" inflation for years, cheap credit, loose fiscal policy etc.....loads of cash, real or imagined flying about, it has just manifested itself as house price inflation. Inflation will now shift in my opinion, the effect..... to increase the price of consumer goods.

V

<{POST_SNAPBACK}>

The reason why consumer prices have not been rising was the shift in world manufacturing from Asia to China. That has lead to consumer goods being price deflationary for years and masked any impact cheap credit would have otherwise had on consumer inflation.

[Guest muttley]

The BoEs remit is to keep inflation at 2% with a window of 1-3%.They're not forced to cut rates if inflation jumps again next month.They could even cut them again if they thought the economy needed it.After all,they were raising rates when inflation was 1.1% last year.

[Guest Charlie The Tramp]

According to notes of the MPC's discussions Mr King and fellow members Rachel Lomax, Andrew Large and Paul Tucker believed it was too early to conclude that inflationary pressures had eased.

I said in past posts that the top would vote against. Wrong about Lambert and thought on past voting Lomax would finally change sides. Well you can`t be perfect all the time.

One thing I am convinced of, rates are not coming down for a very very long time.

Since the BoE`s inflationary report was published where is TTRTR.

Capital Economics appear to go opposite to all the other pundits with dear old Roger still insisting they will be 3.5% next year. he really must clean his crystal ball.

[Sledgehead]

Actually the figures would jump one month and the impact of that jump would remain for the year. There would also be an additional jump on a monthly basis as other prices rose to cover the impact the increased oil price had on the cost of other prices. Something like:-

August 2005  increase due to price at pump

September further (small) increase due to food prices rising to cover increased delivery costs

October ditto

November ditto plus cost starts to be reflected in wholesale prices which are also passed on.

December - November ditto as costs are passed on.

but August 2006 drop to reflect that the pump price increase was over a year ago.

<{POST_SNAPBACK}>

worth pointing out eek.

Further to this, do you know of any studies that graphically depict this. Clearly there will be other factors to muddy the picture (consumer goods could just as easily be affected by high raw materials for eg), but nevertheless, it would be nice to see this in action, retrospectively.

Cheers

[Sledgehead]

Further to the minutes, in a section describing those in favour of a cut, Merv, after outlining the factors in favour of a cut, describes the following attitude:

"A failure to reduce rates now might damage confidence. Early action would reduce the risk that greater changes in the policy rate would be needed at some point in the future, and would not preclude a rise in rates in the future if the data warranted it. For these members, there was no presumption on the future direction of interest rates."

It's almost as if they considered the factors, which were at best suggestive of a no change policy and then just tacked on this sentiment centred addendum, coupled with a caveat that makes interest rate setting sound more like day-trading than long term policy formulation.

Comments?

august minutes

Edited August 17, 2005 by Sledgehead

[BuyingBear]

Two things, if oil was constantly "high" at say $200, then this would feed through to say the RPI figures. But if it stayed at $200 forever (theoretical I know) then it would not drive futher inflation once this price had been fully absorbed (may take years to feed though fully).

<{POST_SNAPBACK}>

No, it would compound and then spiral then your currency collapses on the forex markets leading to inflated import costs which then spark even more inflation, higher prices, greater wage demands, anything that results in rapid printing of money is not good news.

Look at the 70's or modern day Zimbabwe (600% inflation?).

update: they're raising taxes now, VAT has jumped to 17.5%, imagine paying that much, things must be bad, thank god we... ohh.

Edited August 17, 2005 by BuyingBear

[vinny]

Quote BB:"No, it would compound and then spiral then your currency collapses on the forex markets leading to inflated import costs which then spark even more inflation, higher prices, greater wage demands, anything that results in rapid printing of money is not good news."

I think my post, to which this is a reply, is a bit sloppy - sorry. I think if we had a sudden jump to $200bbl then perhaps your assertions are right. Lets say oil was to plateau at current high levels (again highly theoretical) then I think my arguement has a bit more credibility. I am thinking that you have assumed my arguement is for this "jump", then a sustained high level and what happens next in that scenario?

Not where I was going with this one

Here is my post:

"if oil was constantly "high" at say $200, then this would feed through to say the RPI figures. But if it stayed at $200 forever (theoretical I know) then it would not drive futher inflation once this price had been fully absorbed (may take years to feed though fully)."

If you Insert $65bbl or there abouts, where we are about now, a "high" price historically, (where I originally put $200), then perhaps you get the point?

A static price of oil I would say is not a constant driver of "inflation". It oil has to keep rising to have an increasing effect on it's own. I would conceed that a spiral effect though, may occur, but may not happen neccessarily.

BTW could not agree more with your comment on printing money!!

[Guest Charlie The Tramp]

Cutting the interest rate at a time of rising inflation IS STUPID. There is no excuse for it!

Well that means a .50% rise come end of the year, and four .25% rises through 2006.

With employers getting rid of staff and employing cheap labour from Eastern Europe stagflation will once again raise its ugly head.

[A Fool & His Borrowed Money]

The person who made the decision to drop rates at the last meeting was BROWN.

You can almost totally control interest rate policy at will when you have 4 stooges in the MPC to vote for you as you only need 1 other person to vote with this block and whatever you decide is the outcome.

Independant BOE, my ****.

<{POST_SNAPBACK}>

It's all an Elaborate Ploy by Gordon Clown,

He takes the Full Credit for when things go good (as his election rants recently about record low interest rates)

When things go wrong, he Blames it on Merv King

Nice little arrangement he has there!

Very clever!